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October 6, 2011, Featured Articles, The Decumulation Beat

Our Debt Won’t Bankrupt Our Grandkids

By Kerry Pechter   Wed, Oct 05, 2011

Deficit hawks say that federal debts and deficits put our progeny in a hole. Indeed, they've said it for decades. But some economists, starting as far back as 75 years ago, have said that's poppycock. The latter may be right.

Challenging conventional wisdom is part of our mission at Retirement Income Journal, and few pieces of wisdom are more conventional than the supposition that adding more dollars to the national debt will impoverish our grandchildren.

This assumption has paralyzed the country. Fears of increasing the nation’s annual budget deficit or the long-term national debt have emerged as urgent reasons for sawing off the limbs of Social Security and Medicare, on which virtually all retiring Baby Boomers will be sitting.  

Politically, to be soft on the deficit today is arguably as suicidal as it was to be “soft on Communism” before 1989. No practical politician wants to be accused of saddling our grandchildren with the burden of paying back the federal debt. 

But what if this assumption is false? What if it is counter-productive? What if it is based on a simplification or a misunderstanding of the nature of the debt of a sovereign nation with a fiat currency?

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